With the advent of the new tax law, it looks like traditional end-of-year money moves are being destabilized.
Indeed, the higher standard deduction, which is $24,000 for married couples that are filing as one entity, $18,000 for the financial heads of a family, and $12,000 for married couples or singles that are undergoing separate filings, means that hundreds of thousands of Americans might avoid itemizing and prioritizing their federal tax returns for 2018.
Moreover, TurboTax predicts that nearly about 90 percent of all returns will have a standard deduction, in comparison to the 70 percent prior to the changes that occurred.
Hence, it would be ideal for individuals to direct their focus on any strategies relating to year-end taxes; especially those that reduce your taxable income instead of maximizing the tax reductions that you have.
As a matter of fact, here is how to go about handling the given situation.
MAXIMIZE ON ANY INVESTMENT LOSSES THAT YOU ACCRUED
Given how volatile the market was this year, there is a high chance that some of the investments that you partook in were not safe bets.
Indeed, if you experienced any losses that happened to be in a taxable account, for example, a money market mutual fund, a bank account, an investment account, or a taxable account, then you can consider selling it to be able to realize your losses.
In fact, if not attended to, these losses could derail any taxable gains that you had made throughout the year.
Moreover, if the losses happen to exceed the gains that you have made, you can utilize up to a maximum of $3,000 in excess losses to minimize the other income.
INCREMENTING YOUR RETIREMENT SAVINGS
There are a number of positives that come with contributing a maximum amount to your retirement account. However, there are two primary reasons that are quite beneficial.
For starters, you will be ensuring your financial security as you transition to your golden years.
Secondly, having a number of these contributions will minimize the taxable income that you have.
That being said, for you to successfully increase your contributions to the sponsored plan held by your employer before the end of the year, it would be advisable to first increase the amount that was withheld from the last paycheck you received in that year.
When it comes to other sponsored plans and the 401(k), you can start by first funding about $18,500 every year, or opt for $24,500 if you are above the age of 50 years.
Nevertheless, it is vital that you reset your holdings once 2019 kicks off.
Of note is that any contributions made to traditional IRAs are partially or fully tax-deductible, and it depends on whether or not you are funding any sponsored plan by your employer.
That being said, max contributions can range from between $5,500 and $6,500 if you’ve just hit 50 years or older. Nevertheless, any contributions made to Roth IRA are not tax deductible.
CAPITALIZING ON ANY DEDUCTIONS
Indeed, if you are on the verge of itemizing your tax returns for 2018 primarily because your total deductions have an equal standing with your standard deductions, here are some savvy strategies to ensure that you increase your deductions to improve your financial plans for 2019.
Medical treatment: If you spend over 7.5 percent of your gross income in a year on your medical expenses, you can make deductions to these costs. One of the ways of doing this is by making an appointment early on, preferably before December 31st, to handle any treatments that you have delayed.
Property taxes: If you have made a payment that is less than the $10,000 limit for local and state taxes, perhaps you should take up the option of prepaying your property taxes for 2019. In the event that the State allows it, you can make the most from local taxes, as well as state taxes deduction.
Mortgage interest: If you are far from the estimated cap for mortgage interest deduction, which is pegged at $750,000 after passing of the new tax law, you can opt to pay your January mortgage payment starting from this December to increase the interest amount that you paid during the tax year of 2018.
Charitable donations: Last but not least, if you contribute regularly to charities, then you can make your 2019 donation before the end of the year and double the contributions.